Geologist Peter Megaw, one of the co-founders of MAG Silver Corp. (MAG:TSX; MAG:NYSE.MKT), led the geological team that found MAG's Juanicipio project, now a joint venture with Fresnillo Plc (FRES:LSE), in one of the world's largest silver districts. He considers himself an explorationist who is looking for district-scale projects. "I'm not interested in finding the next stope or the next small mine," Megaw told Streetwise Reports. "I'm interested in finding the next mining district."
Quality is important to Megaw. "You always go for quality: Grade is King. Grade is adjustable depending on your style of mining; you don't need the same grade for an open pit that you need for underground. But you also need to have size, something that's big enough to survive a long period of time," Megaw stated.
"One of the takeaways is I think the Silver Sands project is a lot bigger than New Pacific thinks it is." – Peter Megaw
Megaw wants size, he said, because "if you look at something high grade enough to make money under any market conditions and it's big enough to last two market cycles, then at the worst of times, you're surviving, and every other time, you're making money. When times are really good, you're making buckets of money. For those who are taking a long-term market perspective, you're not waiting for the price of the metal to get to the point where the project might become economic."
Megaw uses what he calls Archie's Rule, named after Archie Bell, who served as vice president for exploration for Noranda Exploration Inc. "Archie's Rule is that you must be able to recover twice your all-in operating expenses for your project to make sense. That doubling obviously lets you cover your operating costs but also covers the cost of capital, amortization, depreciation, depletion and a minimum of a 15% after-tax internal rate of return. If you can't make 15% IRR after tax on your money, you should be buying lottery tickets rather than investing in a mining company," Megaw said.
On MAG's Juanicipio project in Mexico, Megaw noted that "we effectively found the western half of the world's biggest primarily silver deposit. Our silver grade is better than 0.5 kilogram per ton and that's production grade. We have, according to the latest preliminary economic assessment, a minimum of 19 years of mine life. So even with the worst of the silver cycle that we've seen over the course of my career that would give you plenty of comfort and life extent for that mine. And that will be the backbone for MAG Silver for many years to come. That represents about $100 million a year in after-tax income. And there are just not that many, if any, junior companies out there that can talk about having that kind of income over that period of time."
"I'm interested in finding the next mining district." – Peter Megaw
Megaw was also involved in founding Minaurum Gold Inc. (MGG:TSX.V), which has the Alamos project in Sonora, Mexico. Megaw noted that "Alamos is what they call an 'antiguo' in Mexico. It was found by the Spaniards in the early 1600s and was in production quite heavily during the 1600s. So, it was big, high-grade veins that stuck out of the ground, very easy to find, very easy to mine. And the history of the district for the next 400 years was basically to just follow the veins wherever they led. Like many of these historic districts in Mexico, the property position had become very divided and very fractionated until one individual spent several years systematically buying and acquiring all of the claims in the district and consolidated the whole thing."
According to Megaw, the district "produced 100 to 200 million ounces (100-200 Moz) of silver at a grade based on historic records of more than 20 ounces per ton (20 oz/t, over 600 g/t) silver. We've taken a lot of samples that suggest that 500, 600 grams is a reasonable expectation for what the ore ran in situ."
The potential is there, Megaw said, "for a whole series of additional parallel veins in adjoining blocks that simply don't make it to the surface in any material way. There's a drill program going on now. The real upside as far as I'm concerned is the potential for blind veins of material size and grade, completely virgin, in the adjoining blocks."
"We've had a few results from some of the holes that went into the known block, and we got some very substantial silver and base metal grades. Those numbers came out sometime last fall. We've continued to drill. I would expect there will be some results not too far into the new year. The program continues," Megaw stated.
Since our talk, MGG put out results for Hole 7, which cut an 8m wide vein running over 1750 g/t silver…nearly 60 oz/t. Hole 7 was the first hole that went far into the adjoining block to reach the projection of a very narrow veinlet we can trace for over 1.25km on surface, Megaw added.
Megaw has also been involved with New Pacific Metals Corp. (NUAG:TSX.V), which has the Silver Sand project in Bolivia. Megaw noted that the project "appears to be a very large, epithermal style of mineralization, very high grade. It has published several intercepts that are on its website, with multiple hundreds of grams of silver; we're talking 300 to 500 gm silver over 20m-plus widths."
"You always go for quality: Grade is king." – Peter Megaw
"Pretty much where you see the silicification with what's called Leisegang banding, that's where the silver mineralization is. If there's as much of it there as it looks like, this thing has the potential to be a very large, underground, high-grade silver producer for a very long time. It's less than 100 kilometers from Cerro Rico de Bolivia, which was the world's second largest silver deposit, until Fresnillo passed it in 2015," Megaw stated.
"One of the takeaways that I had from the project is that I think the project is a lot bigger than New Pacific thinks it is," Megaw said. "They have focused too much in and around the historic part of the district. I think there are lots of reasons to push the drilling further away from that, mostly because I like to see size sooner rather than later and I think you can see the size based on the outcrops. So, I'd like to see it made bigger sooner."
Barksdale Capital Corp.'s (BRO:TSX.V) Sunnyside project in Arizona has also seen Megaw's involvement. "Barksdale has picked up what appears to be the source end of Arizona Mining Inc.'s (AZ:TSX) Taylor deposit. When you look around the Sunnyside porphyry complex, there are literally hundreds of prospects and dozens of old mines that mined high-grade sulfide veins in the volcanics that overlie the limestones that host the replacement and skarn mineralization at depth," he stated.
Megaw sees the carbonate replacement skarn porphyry system as zoned. "Think of an archery target. The bull's eye is the porphyry center, which is dominated by copper. Then you have concentric rings outward from there where progressively you go from copper to zinc to lead to silver to manganese. The relative dominance of one metal or another is important. And in this particular case, you get to throw a gram or two of gold in in different parts of this as well," Megaw stated.
Barksdale has submitted drilling permits. "In a place like Arizona, the permitting process for the federal forest service can be a protracted process. It's probably a year before they're able to start drilling," Megaw said. "That doesn't really bother me because there's a lot of legwork that needs to be done first," he added. "First of all, we need to get out and do some mapping and sampling and see if we can generate a metal zoning picture to understand where the best, richest part of the system is likely to be. There are some very inexpensive, low-impact geophysical techniques that we should be applying out there to see how deep we have to go to get to the good coherent limestone part of the package. So, there is well over a year's worth of work before there should be drilling out there. With any luck, the combination of timing and moving the project forward geologically should coincide, and it should be ready to drill in a year to a year and a half from now."
Megaw is technical advisor to Manson Creek Resources Ltd. (MCK:TSX.V). You don't hear about mining jade every day, but that is what its DJ Jade project is all about. The company is run by J.P. Jutras, who used to head Tyler Resources, and upon the sale of Tyler followed his passion, jade carving.
Jade, according to Megaw, is a $60 billion a year market, with that number coming almost entirely from China.
"The DJ Jade project clearly has high-quality potential with the potential to be big in jade terms." – Peter Megaw
Jutras, Megaw explained, "recognized a couple of places in the state of Washington where he found some extremely high-grade jade exactly where he expected it to occur geologically and was able to convince some people that he knows that they should take Manson Creek Resources, which had been a back burner gold company, and reformulate it as a jade company. No one has ever taken a jade company public before. No one has ever played this game before, which is kind of exciting." Manson Creek has reserved the trading symbol JADE and expects to change its name at the upcoming AGM.
"I've been up there. I've walked the ground. I've seen the jade in place. I'm still on a steep learning curve as far as understanding what the geology of jade is, but I like what I see so far. It clearly has high-quality potential with the potential to be big in jade terms. Its claim package seems to cover the whole area of interest," Megaw explained.
"The next step is to continue mapping and sampling and drilling. Drilling in this particular case would be a very low-impact, relatively short-hole kind of program. It's on forest service property in the state of Washington in an area that's been heavily logged in the past, so it has had significant impact. We're approaching the permitting stage of the project for drilling. It's hard to tell how long it takes to get permits in Washington. Considering how much things are changing under the Trump Administration, things might actually be able to move not only for Manson Creek but, also, for Barksdale much faster than people thought," Megaw stated.
Mining is cyclical and Megaw's advice for investors is to remember that "it takes on average 10 years from discovery to production, so you better have a pretty long-range thought process in terms of how you're investing in the sector because it's not like something that's going to be discovered and start making money next quarter or even next year. It's down the road. As always, focus on size and grade. Figure out what makes sense, do your Due Dilgence and invest wisely."
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Disclosure:
1) Patrice Fusillo compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an employee. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: MAG Silver. Streetwise Reports does not accept stock in exchange for its services. Click here for important disclosures about sponsor fees. As of the date of this article, an affiliate of Streetwise Reports has a consulting relationship with New Pacific Metals.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) Peter Megaw: I, or members of my immediate household or family, own shares and/or options of the following companies mentioned in this article: MAG Silver, Minaurum, New Pacific Metals, Barksdale Capital and Manson Creek. I personally am paid for my geological consulting services by the following companies mentioned in this article: MAG Silver, Minaurum, New Pacific Metals, Barksdale Capital and Manson Creek.
5) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
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